Inventory Management is a technique through which stocked goods, inventories, and non-capitalized assets are primarily disciplined according to their specific shape and placement. Inventory can be any good or material that a business holds for receiving the goal of resale or repair.

At different locations of a supply network, planned course of production and stock of materials, you will be in a need of Inventory Management System.

Inventory Management is the technique for ordering, storing, and use of the company’s inventories. This stock management includes generating the lead on raw materials, components, and finished products, along-side warehousing and processing of such items in your company.

Inventory Management System is much beneficial for your company if it deals with the complex supply chains and manufacturing processes where it becomes difficult to maintain the risk of inventories surplus and paucity. The system is helpful in the same manner for all those companies which have a complex working strategy.

Inventory Management Working

Available stock is counted as one of the valuable assets of the company. A core of any business is the company’s inputs starting right from its retail, manufacturing, to production and then delivery. Including other inventory intensive sectors until the products get finished. It can be very deleterious if any of the product gets short from source and place, where it is needed.

For the following few reasons Inventory Management is important for any business of any size:

  • When to restock certain items
  • What amount to purchase
  • What price to pay
  • When to sell
  • What price to sell at
  • Inventory planning and control
  • Movement of stock
  • Re-order level

If you have a small business then you can keep the record of its stock manually and determine the quantities using excel sheet but if are from a large business space then a specialized enterprise resource planning (ERP) can be used whereas if you have comparatively large corporation then you should use highly customized software as a service (SaaS) application.

Inventory Management Accounting

Available stock must be physically counted before it is put on the balance sheet.

Inventory accounting is grouped into four separate categories:

  • Raw Materials – The raw material is purchased by any company for its production purpose to transform it into a finished good
  • Work in progress inventory – refers to the process of transformation of raw material into a finished product
  • Finished goods – these are the complete goods that are now ready to be available for sale
  • Maintenance, repair, operation (MRO) goods – items used for support of the production of finished goods as they will be purchased from the distributor of future resale

Inventory Management Techniques

To keep the record of inventories and manage them many management techniques are used to fulfill the aspect of customer demand and profitable operation by any company. The process is typically complex when a company needs to deal with thousands of stocks keeping units that can compass multiple warehouses.

Inventory Management Techniques

Following are the techniques that can be majorly used for inventory management as a mixture to develop comprehensive strategies for your business:

  • Managing Supply Relationship — Keeping the communication open with your suppliers would help you make time and cost-saving deals with them. You should be precise about your order quality and delivery time and try to stick with the suppliers who keep to their word when it comes to promising deliveries.
  • Stock Review — A regular revision is also necessary to compare your current available stock with their future need.
  • ABC Analysis — ABC Analysis allows you to characterize your product according to their requirement. A few of the product require more attention than others. In this add your product to each category as per their requirement list.
    1. Category A — This includes the product of high quality with a low frequency of sales.
    2. Category B — This includes the product of moderate quality with a moderate frequency of sales.
    3. Category C — This includes the product of low quality with a high frequency of sales.
  • First-in, First-out (FIFO) — It is basically a stock control method where the retailer will fulfill the order with an item that was there in the stock shelf from the longest. It can be defined as the product which was acquired first will be sold first.
  • Last-in, First-out (LIFO) — It works relatively opposite to that of FIFO as it confirms the most recent acquired products to be the first for selling. It determines the value of the sold stock by the most recent pricing.
  • Weighted Average — It is used to assign the average cost of production of the product. In this, the cost of goods available for sale is divided by the number of units that are available for sale which yields the weighted average cost per unit. The final weighted-average value is used to assign a cost to both ending goods and the cost of goods sold.

Importance of Inventory Management  

Accurate stock management will help your brand to fulfill orders on time and perfectly. Without proper management and tracking of available goods, it will be difficult for you to know what you need, when you need, in what quantity you need it. With a good stock management system, you can keep a track record of all your assets in detail. You can have all kind of information and capabilities at one place that will allow you to make informed decisions regarding all the needs of your company.

Following is the list that will assure you with all the importance of inventory management as a system to work for your company:

  • Goods are manufactured generally in bulk so maintaining their record can be a difficult task including its hundreds of components. To avoid the missing or halt of any raw material that can hamper the production, therefore a risk of production will be reduced at its maximum.
  • When your company places a certain order for production, it incurs some expenses. The prepared order will go through a panel of approval, this will cost a little for a small company and more for a large company and to avoid this risk of cost, inventory management software will help your business a lot.  
  • Inventory management will help you minimize the blockage of financial resources. It will reduce the unnecessary tying up of capital in excessive stocks.
  • The advantage can be made over price fluctuation which means purchasing of raw material when the prices are low and keeping stock for regular production of goods, procuring high prices and maximum profit of your company.
Importance of Inventory Management

Administration of available stock can be easily done:  

  • You can manage to deliver your products on time and precise without bothering your customers regarding the delay, through the record and reminder of inventory management.
  • You can manage to achieve your efficiencies and economies in time with the scheduled manufacturing process. By maintaining the level of a production schedule becomes easier.
  • Orders purchased in bulk through buyer will make some discount, as a result, the manufactured product will have a cost gap by which discount can be given which can increase the profits by approving quantity discounts.
  • The inventory control also helps in demand fluctuations as in keeping prepared goods in safety stock for a bulk order, which will protect your company against any variation in sales rate, production rate, and procurement time.
  • With the help of an inventory management system, your company can maintain a record to protect itself against thefts, wastes, and leakages of inventories and their replenishment accordingly.


Proper inventory management software must be used to manage stocks. This is the high time for you to streamline on inventory management software. It will help you to track your inventories, optimize your warehouses and storage facilities, ultimately making your business growth loss-free. You can record all kind of information and capabilities at one place that will allow you to make informed decisions regarding all the needs of your company.

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